The Global Economy.

The world now is divided into a paper economy, which is financial and driven by psychological factors with speculators motivated by quick profit, and a real economy with prices of physical goods and projects rising beyond the rule of supply and demand. While the price of paper WTI has risen less than six-fold since 2002, those of physical commodities and projects in some cases have soared ten-fold. A 615,000 b/d oil refining project in Kuwait, for example, in 2002 had a budget of $2 bn; now the cost estimate for this is $20 bn.

While the paper economy is a thing of the rich world, the other one is driven by emerging economies (EEs) such as the petroleum-exporting part of the GME, China, India, etc. Real wealth, meanwhile, is migrating from the rich world to the EEs at such a rapid pace that economists wonder whether the state of world peace is sustainable (see news17LebHoldsAllConflictsApr21-08 and fap4-IraqShi'ite-IranThreatsApr21-08). In Rome, Saudi Petroleum and Mineral Resources Minister 'Ali al-Na'imi on April 22 warned that the kingdom's oil production capacity will not increase beyond the 12.5m b/d target set for end-2009, meaning lack of spare capacity beyond 2009 will cause oil prices to remain high, with paper WTI on April 22 having risen to $119.90/b.

In their cold war, the US and the Iran-led axis seem to function in two different planets. The Bush administration has made terrible mistakes during its first term which included the invasion of Iraq; but its second term is ending with the Americans having learned a great deal about Muslim geo-politics and intrigues and with the US having all the mechanisms needed for its renewal as a super-power - as was the case after its Vietnam debacle in the 1970s.

In Iran, however, street-smart rulers are still oblivious of the fact that they have made a mess of their economy, with the country losing 500,000 b/d of its crude oil production capacity every year - as one example. Tehran's nuclear and regional ambitions have become so costly that Iran's economy is bleeding rapidly, while on the Arab side of the oil-rich Persian Gulf the boom is unprecedented.

Govt Regains Control Of Oil-Rich South: With US and UK help, the Shi'ite-led government of Nuri al-Maliki has regain control of Iraq's oil-rich south. In its March 23-31 fight to subdue Jaysh al-Mahdi (JaM), the thuggish Shi'ite militia of anti-US cleric Muqtada al-Sadr in the south, perhaps nothing reveals the complexities of the Iraq conflict more starkly than this: Iran and the US are on the same side, both letting Maliki's forces clamp down on all remaining JaM pockets of trouble in the rest of Iraq, to the extent that on April 25 - despite the high casualties his militia had suffered - Sadr was compelled to issue stricter orders for his militants to cease firing. Sadr thus re-affirmed a truce he declared in late August 2007, after bloody clashes with men loyal to his Shi'ite arch-rival 'Abdul-'Aziz al-Hakim who leads the Supreme Islamic Iraqi Council (SIIC).

The convergence boil down to mutual self-interest. The US is backing the government it helped create and taking the steps needed to protect American troops and civilian officials. Iran's motive hinges on the possibility that Sadr's political and militia followers could gain power in provincial elections set for Oct. 1 and disrupt creation of a large semi-autonomous region in southern Iraq which Tehran sees as beneficial. Sadr is an Arab nationalist opposed to federalism which Hakim wants.

Iran, however, has backed all Shi'ite groups in Iraq including factions of Sadr's JaM which are armed, trained and officered by the Quds Force. The latter is the external arm of Iran's elite Islamic Revolutionary Guard Corps (IRGC) which controls the theocracy. The US has come to know all this and the tricks needed to deal with the IRGC threats (see fap4-IraqShi'ite-IranThreatsApr21-08)

The US says Iran has backed thousands of attacks on US troops in Iraq, bitterly opposes Iran's nuclear and regional ambitions and has not ruled out military action if Iranian policies do not change. Tehran takes seriously Iran's depiction of the US as the planet's Great Satan. But both are making nice on the issue of countering Sadr, one of Iraq's most powerful Shi'ite clerics. As government soldiers took control of the last areas of Basra from JaM on April 19, concluding a month-long effort, Iran's IRGC-controlled Ambassador to Iraq Hassan Kazemi Qumi took the unusual step of expressing strong support for Maliki's position and described Sadr's fighters as outlaws.

This only confirmed Sadr's suspicions, that the Iranian theocracy wanted to weaken Iraq. But while some officials say his April 25 call for JaM to abide by his 2007 ceasefire order is a prelude to a new Sadr approach towards the US - to balance Hakim's alliance with the Americans, others say he was determined to keep fighting the US.